Australia’s Oil Vulnerability – The Key Trends

Yesterday I looked at Australia’s decline in oil self-sufficiency, a trend that is set to continue into the future. Today, it’s time to look at another significant trend likely to affect Australia’s oil vulnerability: the decline in domestic refining capacity.

2. Declining Domestic Refining Capacity in Australia

The majority of Australia’s refining capacity is located close to the major consumption markets on the east coast. Crude oil feedstock for these refineries comes in part from domestic oil produced in the Bass Strait, but mostly from increasing quantities of imports.

Australia’s six refineries are small compared to the larger, more efficient refineries being established in the Asian region, resulting in increased competitive pressures on refining operations in Australia. This competitive disadvantage has resulted in the decision by some operators to close certain facilities and convert them to oil product import terminals.

Figure 1: Liquid fuel infrastructure in Australia.

Shell shut down the Clyde refinery, located near Sydney, in late 2012 and sold its Geelong refinery to Vitol in 2014. Additional planned closures of Australian refineries include Caltex’s Kurnell refinery by mid-2014 and BPs Bulwer Island refinery in mid-2015. Once the closures are complete, Australia will be left with only four refineries, equating to a reduction in domestic refining capacity of 42 per cent since 2011. Any further rationalisation of domestic refinery capacity will further increase the proportion of refined products sourced from overseas.

Concerns have been raised that the reduction in Australia’s domestic refinery capacity could negatively impact on domestic energy security. A report from Australian Strategic Policy Institute (ASPI) contends that closure of domestic refineries removes Australia’s ‘capacity to divert oil exports to domestic consumption in the event of a disruption.’ The NRMA’s latest report on Australia’s Liquid Fuel Security also suggests that Australia would ‘no longer have any liquid fuel supplies that could be considered secure, and … would lose the option to resurrect some or all of [its] local liquid fuel supply chain as part of a solution to a crisis.’

The Age queried:

‘With dwindling refining capacity, how would Australia cope if petrol supplies were suddenly cut off by a war, natural disaster or other catastrophe?’

In 2012, Department of Resources, Energy and Tourism (DRET) commissioned the National Energy Security Assessment (NESA) Competitive Pressures on Domestic Refining report to consider the energy security implications of having less refineries operating in Australia. It concluded that despite the closures, ‘supply chain diversity and flexibility is retained which provides continued security of supply. Only in the unlikely scenario of no refining sector coupled with a failure of physical oil markets does Australia lose the flexibility to redirect and refine some crude oil.’

Similarly, the House of Representatives 2013 report on Australia’s oil refinery industry suggests that ‘the changes in domestic refining capacity to date will not impact on Australia meeting its liquid fuel requirements. There are reliable, mature and highly diversified international fuel supply chains, which provide Australia with economic security.’ The Daily Reckoning Australia asked:

‘Would you be paranoid for arguing that a country should not trust its energy security to foreign trade?’

Australia’s Oil Vulnerability – The Key Trends

As the world enters the Peak Oil era, it’s important to identify some of the trends which contribute to Australia’s oil vulnerability. Significant risks to Australia’s liquid fuel security currently exist and it is possible to identify future trends which will see this fuel security decline even further.

Let’s take a look at what some of the current oil vulnerabilities are for Australia and then examine what this could mean in the future, when oil depletion begins in earnest.

1. Australia’s Declining Oil Self Sufficiency

In absolute terms, Australia is largely self‑sufficient in the coal and gas needed to provide energy to its economy and society. However, the same cannot be said for oil and petroleum products which account for 34 per cent of total energy consumed in Australia and 97 per cent of the vital transportation sector.

Australia’s oil production peaked in the year 2000 and has declined overall since then (figure 1). Liquid fuels production will continue to decline because production from new domestic projects has not been able to offset declines from currently producing fields.

While Australia’s oil production is already in decline, national consumption has risen steadily by around 20 per cent over the past decade. Australia is a net importer of both crude oil and petroleum products (Figure 2) and the trend towards increasing net imports is set to continue in the coming decades.

Figure 2: Australia’s total oil production and consumption (1992-2014)

Net imports currently account for about 60 per cent of Australia’s consumption, however Australia’s oil self-sufficiency is actually far less than the remaining 40 per cent would suggest. The Carnarvon Basin off Northwest Australia accounts for 72 per cent of total Australian liquids production. Most of this bounty is exported due to the lack of regional refining capacity, the proximity to Asian markets and the ability to demand premium prices for the light, sweet grade of oil produced in the region. Subsequently, the country’s North and Northwest regions completely rely on imports of refined liquid fuel products.

Presently, only 17 per cent of the feedstock used in domestic refineries comes from domestic crude oil, down from 37 per cent a decade ago. Figure 3 illustrates just how little of Australia’s indigenous crude oil is refined into products that meet the end needs of Australia’s citizens and industries.

Figure 3: Australian liquid fuels supply and usage.

The Australia Senate noted in 2007 that:

‘Australia’s self-sufficiency in oil is expected to decline into the long term as reserves are depleted and because of rising demand.’

I’ve been reading back over some of my old posts recently and have really enjoyed hearing from ‘my younger self’. Life has been busy these last few years and unfortunately I haven’t had the time or inclination to blog. We started a family nearly two years ago, with the arrival of our son Caelym. Between full-time work and raising a small human, I haven’t had the brain space for much else and I feel like I’ve lost a lot of the ‘old me’. I’ve been sucked back into the system, but now I really want to change that and reconnect with some of those values that were really important to me 3-4 years ago.

1. Getting off the Economic Grid

I’m really happy with the progress we have made against this goal. The mortgages have been paid off since 2010 and we’ve since put our effort into saving as much cash as we can. We’ve been mostly living on one income since the arrival of our littlest human, but we are still pretty happy with what we’ve managed to achieve. We sometimes second guess our decision to hold our savings in cash, because the interest rates are quite low and we’ve been programmed all our life to buy shares or houses as the way to wealth. However, we still believe there is a large downside risks with shares and property, so for now cash is king for us.

Brendan has officially exited the rat race. He now shares his time between the most important job in the world (raising a good human aka Caelym), working on a couple of alternate income streams and adding to his skill set. That’s one of us who has escaped. Now we just need to work on a plan for me too, but for the moment I’ll continue to use my job to build up our cash buffer.

2. Reducing Energy Dependence

We are so happy with the decision we’ve made to rent a detached townhouse just a 15 minute walk to the city centre. We can walk to shops and cafes and rarely need to get in the car which means we can do without a second vehicle. My daily commute to work is about 4km each way and although I had grand plans to commute by bicycle, the extreme cold for six months of the year has been a big barrier for me. I mostly use the car, but am trying to use the bus more. We’ve recently bought a bike seat for Caelym, so now Brendan can venture further afield during the day, rather than just relying on walking.

Our home is centrally heated with natural gas, but we do find that heating expenses are the largest energy expense we have. Our house seems to leak hot air and we need to do a better job of sealing it. Our first winter in the house we kept the thermostat at 15 degrees and just put on more clothes, but with a baby in the house we’ve had to increase the internal temperature to 18 degrees. It’s amazing how much those extra three degrees costs each year.

3. Improving Food and Water Security

I must admit, I’m not as happy with our progress on this goal. We do have a compost pile and a small vegetable and fruit patch in our courtyard, but we are yet to master winter crops. It is certainly a lot more difficult to grow food here than in was in California. Although the garden hasn’t been hugely productive, I do love that Caelym gets to see food grow and ripen. He loves to pick and eat strawberries (our most successful crop) straight from the plant and waits patiently for the strawberries to ripen. Most of the time we beat the local possums to the fruit. Now that we have a bit more time on our hands we want to try harder to grow something through winter this year.

We’ve also become very slack when it comes to stockpiling some food and water for emergencies. There are few natural disasters likely to impact us here so we haven’t been as conscientious about our preparedness plans. This might be something we need to revisit.

4. Building Community

Again, I don’t feel like we’ve done as well on this goal. For various reasons, we’ve actually found ourselves quite isolated for the first 18 months of Caelym’s life. I feel like we are coming out of that now and we do know a lot of our neighbours and have some friends that we catch up with on occasion. We don’t really get involved in the community very often but we do feel the desire to find ways to start living a bit more closely to our values.

Now that I’ve had a look back at the goals I had set myself in 2010, I really feel the desire to start mapping out the next few years. We have reached a significant milestone in terms of our economic independence and we need to work out what’s next. More to come I’m sure.

If you are still reading, please leave a comment. I’d love to know if anyone is still out there🙂

It seems like the world has turned upside down since the beginning of the year. I’m trying to make sense of it all, so I plan to spend a bit of time over the next few weeks discussing the big events; what may have led to them and what might be the outcome. First up….let’s talk about Libya.

When the West decided to intervene in Libya my first thought was, “Of course…Libya has oil”. After all, plenty of humanitarian crises are occurring in other parts of the world and yet they are left alone to sort their own problems out. Oil makes Libya a special case.

However, from politicians and talking heads on TV I was hearing that this was not about oil, because Libya only has about two per cent of the world’s oil production. They claim that they were going into Libya because they had learned their lesson in the 90’s and didn’t want another Kosovo on their hands. Two percent is supposedly nothing in the global oil supply….a mere blip, which the global economy could care less about.

When we look at the percentage of European oil imports that come from Libya, the story becomes a lot clearer. More than half a dozen European nations rely on Libyan oil for more than 10 per cent of their oil imports. This then is one obvious reason for the West’s intervention in Libya. Industrialised economies cannot afford to lose access to 10-23 per cent of their oil imports.

But given the relatively small quantity of oil passing from Libya to North America, why is the US so heavily involved? Is it just a matter of the US helping out its NATO allies or is there more to this than meets the eye?

Dr. Paul Craig Roberts, former assistant secretary of US Treasury provides some insight on the revolution in Libya in a recent interview. He states:

In my opinion, what this is about is to eliminate China from the Mediterranean. China has extensive energy investments and construction investments in Libya. They are looking to Africa as a future energy source.

The US is countering this by organizing the United States African Command (USAC), which Qaddafi refused to join.

[…]

In my opinion, what is going on is comparable to what the US and Britain did to Japan in the 1930s. When they cut Japan off from oil, from rubber, from minerals like ore; that was the origin of World War II in the pacific. And now the Americans and the British are doing the same thing to China.

The geopolitics of oil is a very interesting subject and occurs very much outside of the spotlight of the mainstream media. It is my opinion that the great world powers are fully aware of the oil shortages upon our doorstep and are manoeuvering to control access to the remaining deposits of conventional oil. What concerns me is how this might play out. What we are now seeing in Libya could be the beginnings of the 21st century’s first great war.

The other interesting story surrounding Libyan oil is that Saudi Arabia pledged to raise production to offset the decline from Libya, and yet Saudi Arabian production remains flat. Could this be an indication that the kingdom actually no longer has the spare capacity to meet the global demand for oil? From the Daily Reckoning:

For better or worse, most of the “spare capacity” burden falls on Saudi Arabia. Saudi princes claim to be able to goose production from 9 million barrels a day to 12 at the drop of a hat.

Never mind that they’ve never done anything like that before, even when oil ran up from $25 to $147 a barrel between 2003-08. The official line – and, therefore, the oil market – still believes it’s true.

Bottom line: “Saudi Arabia can’t make the shortfall from Libyan supplies,” says commodities investing legend and Vancouver veteran Jim Rogers. “They’ve said in the past that they can increase production, but they can’t.”

To me, this is just one more indication that we are very close to, or past the peak in global oil production. If a loss of two per cent of the world’s oil supply cannot be made up by OPEC’s ‘swing producer’, and is cause for military posturing, then surely we are in a desperate place indeed.

What we hear from the media is that this latest run up in prices at the fuel pump is simply a result of speculators and freaked out investors, coupled with typical Easter long weekend price hikes. What they are missing is that the end of cheap oil is here. We have now entered a world of highly volatile liquid fuel prices, and just about anything could happen. Oil production can no longer keep pace with demand and desperate times call for desperate measures. Hold onto your hats, we could be in for a wild ride.

It’s been a long time since I posted on this here blog, but it’s now time to get back into it.

I’ve now relocated and settled back in to Canberra, Australia after a wonderful three years living and working in Southern California. I’ll be honest and say that I did suffer quite a bit of reverse culture shock; the feeling that I no longer fit into my home country. We had been warned by fellow ex-pats to be prepared to experience reverse culture shock, but I guess you can’t fully prepare for how it really might feel.

Nobody Cares About Your Travels

OK…maybe I’m being a little harsh to say that nobody cares, but my experience is that most people will listen superficially for only a short time before losing interest. At first this was hard, but now we just keep our experiences to ourselves unless someone specifically asks. One of my saviours has been talking to people who have also been ex-pats. They understand what it feels like to return ‘home’ and are actually interested in the experiences we had overseas.

Normality Hits Hard

For the first couple of weeks back in Australia we were excited to see family and friends, eat all our favourite foods, sit in our favourite cafes and see kangaroos again. However after about two weeks the ‘normality’ of Australia began to hit us hard. When we moved to America, everyday tasks were interesting (although sometimes extremely frustrating) simply because they were different. Even though some things had changed in the three years we were away, Australian supermarkets still stocked all the same foods, the cars on the road were still familiar and the Aussie slang which was a shock when we arrived home began to sink back in.

People Just Don’t Understand Us

Most noticeably, we came home with many new opinions about things. Our minds had been opened while away and we came back seeing Australia and the world in general, in a totally different way. Unfortunately for us, people back here still think the same way they always have, so we have had a difficult time trying to find common ground. For the last few months we have felt very isolated because we couldn’t fit our new beliefs and knowledge into our old lives. However we are now starting to find ways to mesh the two together and are starting to feel more comfortable.

It’s only in the last couple of weeks that I have started feeling comfortable with my life back in Australia. Our house is mostly unpacked, we have caught up with all of our immediate family members, I have settled into my new job and actually think I know what’s going on and have received a couple of exciting opportunities which I’ll tell you more about soon.

Brendan and I are well trained to respond to fire alarms. I won’t speak for Brendan, but my experience started in earnest during my four years at University. I shared a building with 47 other people, and my building was directly adjacent to many others just like it. During exam time, we inevitably had people up at all hours studying and making toast….or rather burning toast. This resulted in spending many hours in the parking lot wrapped in a doona (comforter) and waiting for the fire department to arrive and declare the building safe.

Years later, Brendan and I were backpacking through Tasmania, Australia and one night our Devonport Hostel caught on fire. We evacuated, waited a few hours until the fire was contained and then slept in a room reeking of smoke. Obviously we moved on the next morning, but a few days later we saw in the news that the same hostel had caught fire again and this time, people had died.

A few nights ago in Sarlat, France we were awoken at 1am to a shrieking fire alarm. We quickly got up, dressed, grabbed our essential belongings and headed out into the street. One other hotel guest was outside in the freezing cold with us. No fire department turned up. No hotel manager. Just us…and one other guy. After about ten minutes the alarm switched off, we all looked at each other, shrugged shoulders and went back to bed.

We’ve learnt from experience that although 99% of fire alarms are nothing to worry about, every now and then, responding appropriately could save your life. This evening, after a decent sized carafe of good French ‘vin blanc’ I’m being a little introspective. I realise that I approach life the same way I approach fire alarms. If I see warning signs I respond, even if it means that 99% of the time it was for nothing. Surviving that 1% is the key.

I’m currently in Paris, France. It’s cold, but at least it isn’t snowing. We’ve been enjoying beautiful blue skies and gorgeous soft winter light; just perfect for photos.

It’s been 13 years since I was last here, although I can’t honestly remember the city much from that trip. Back then I was a student on a very tight budget and the Aussie dollar was terrible. I remember eating a lot of McDonalds that trip. This time, the Aussie dollar is good and it’s croissants, crepes and plenty of good coffee.

The city is not as crowded as I remember. Perhaps the weather is keeping people away or everyone’s too broke to travel. Or maybe it’s just that I’m more used to big cities and I try to avoid the tourist traps as much as possible. Either way, it’s been really quite pleasant. After being constantly disappointed by American cities (with a few exceptions), it’s nice to re-discover a city with a long and interesting history, beautiful architecture, a great sense of fashion and fabulous food on every block.

Paris also feels very safe. We were out until nearly midnight last night (darn jetlag!) and even though it was a Sunday night, there were plenty of people in sidewalk cafes or out strolling the cobblestone streets.

The transportation here is also a far cry from American or Australian city transportation. The metro is fast, efficient and extremely extensive. Wherever we found ourselves in the city these last few days, we never seemed to be more than a few blocks from a metro station. The stations themselves are clean and the trains come through every few minutes like clockwork. I can see why the metro strikes would completely disrupt the ability of the city to function.

There is also very little parking space, so the personal vehicles are mostly very small cars (think smart cars) or scooters. They zip around very handily and fit into the tiniest spaces. It’s a world apart from the monster trucks and equivalent parking spaces we’ve been used to in California. They also have this fantastic new Vélib’ bike rental system with stations scattered all over the city. Although we like cycling I honestly couldn’t see myself weaving in and out of traffic like the locals do. You’d need nerves of steel to try it!

Tomorrow we start our three week journey through France and Italy. Although I’ve enjoyed la cite, I’m looking forward to visiting the countryside and some of France’s smaller towns.

Tomorrow we get on a plane and leave the USA. For the last few weeks we’ve alternated between frantically finalising our life here and reminiscing about our favourite and least-favourite experiences here. It’s a bitter-sweet feeling leaving a country that has been home for three years. We are excited about ‘going home’ to the culture we grew up in, to see family and friends and to eat all those foods we’ve been missing. But we are also sad to leave new friends and a country that has opened our eyes and broadened our horizons.

I don’t think the fact that we are leaving for good it has fully hit us yet. As with moving over here from Australia in 2007, I expect we’ll experience some level of reverse culture shock once we get home. There are a lot of differences between these cultures and I expect I’ve become rather accustomed to the US way of doing things. Returning to Australia will no doubt highlight those differences more than I can remember at the moment.

Anyway, we are returning to Australia via ‘the long way round’ (i.e. via Europe). I hope we don’t experience too many delays with the crazy snow storms or protests against Europe’s austerity programs. If we do, I guess we’ll have stories to tell. That is the joy of travelling.

I hope to update this blog with some of my travel tales along the way, but until then I’ll leave you with a photo of Zoe dog enjoying her morning walk before she left the US last week. She’s now residing in Australian quarantine until we get home.

On the day after Thanksgiving each year, Americans partake in a strange pastime where they line up for hours (or even days) in order to be one of the first to rush into a store and snap up all the supposed bargains on offer. I have a very hard time understanding the allure of this type of madness, but then I’m not much of a consumer. In America land, consumerism is a national sport and Black Friday is the equivalent of the Super Bowl. This is one aspect of the American culture that I will not miss at all.

The following video offers a glimpse of the frenzy. Someone likened the scene to what you would see in starving, third world nations when the food convoy arrives. I’d advise you to turn down the volume before you watch this clip. For some reason it’s pretty loud.